What is Socially Responsible Investing and how to get started?

Posted by Akash Dwivedi on February 1st, 2021

SRI, or socially responsible investing, is more profitable and attainable than ever. Once regarded as a quite radical plan, SRI has increasingly gained popularity. It is the investing strategy which aims to produce both financial returns and social change for the investor. To define socially responsible investing, itcan incorporate firms making a social or positive sustainable impact, like the solar energy firm. It excludes those making the negative effect. SRI tends to go by several names, which include sustainable investing, ethical investing, and value-based investing. The term SRI also stands for Sustainable, Responsible, and Impact Investing. Some of the online shopping sites also seem to be pushing it.

Now that you know what is socially responsible investing, let’s look at it with a deeper perspective. A few SRI practices utilize the framework of social, governance, and environmental factors for guiding their investing. Generally, this is referred to as ESG (Environmental, Social, and Governance) investing.

A brief history of what is socially responsible investing

For quite some time, the socially responsible investors avoided investing in so-called “sin industries”. These include liquor, gambling, and tobacco. However, this investment trend developed in the 1960s while people started investing in those projects which fostered civil rights too. In terms of socially responsible investing companies, the protest disinvestment in South Africa (1980s) is a good case in point. During the time, companies and individual customers decided upon withdrawing the investments from South Africa. This was done due to the apartheid policy which caused discrimination against particular races.

Yes, the socially responsible investing companies started it as an easy activity related to religious societies. However, it has immensely evolved & is now mainstream practice. This concept is increasing in popularity as it is being continuously embraced by both corporations and individuals.

Getting started with SRI

Now, you know the definition and benefits of socially responsible investing. So, let’s see how you can make the first socially responsible investment:

1.      Pick the social criteria – You can’t select Socially Responsible Investments till you know what the social goals to promote are. It is not as simple as you shop online for all essential needs. At this point, don’t worry about how funds perform and what is available. Wish to make the most of the benefits of socially responsible investing? Only think about what you wish to attain the money and your values. Afterwards, jot down the criteria list which the investments require for fulfilling to put them in-line with the conscience.

2.      Opt for the financial criteria – Now comes the 2nd most relevant step in this guide to socially responsible investing. Consider the investment goals, just like you would while making the other investment. Think about what you are investing the money for, while you expect to require it. Also, consider how big the return you require for meeting the goals and how much risk can you manage. Do you know what the guide to socially responsible investing says? Don’t worry about hurting the bottom line any more than in conventional investments by SRI. Several academic and financial institutions’ studies display that SRI offers returns at least as fine as traditional investing. ( Study by Global Impact Investing Network, TIAA-CREF Asset Management, and Morgan Stanley Institute for Responsible Investing)

3.      Look for funds which cater to your requirements – Once you have nailed down the financial and social goals, the next step is to explore investments which meet them. Now, it is among the most valuable socially responsible investment strategies to keep in mind. A good place to search is the US SIF site that provides handbooks on investing. It is done for advancing women, fighting climate change, and fighting corporate money in politics. Always remember that irrespective of how good the socially responsible investment strategies are, avoiding the funding part will fail. Also, US SIF publishes the funds’ list which displays how different the funds perform & what social screens they apply. You can find suggestions for SRI funds in monetary publications too, like Kiplinger’s Personal Finance & Forbes.

4.      Compare & select – Do you know how to define socially responsible investing? If yes, then each of these strategies will prove to be successful for you. Take a look at investments on the shortlist. Then, enquire yourself - which ones do the perfect job of fulfilling both your financial goals and social goals. Of course, depending upon what the goals are, you might need to make a few tradeoffs. Say, one of your aims as the investor of best socially responsible investments is to keep charges as low as possible. However, SRI funds with the lowest overall rates don’t do the best job of catering to your social goals. So, for assuring best socially responsible investments, an attempt at striking the balance based upon what is most relevant to you. Now it becomes super simple as you do online shopping from any site.

SRI Performance

Does the do-good investment strategy perform as nice as the basic? Well, the short answer is, yes socially responsible investing is as good as the basic one. Well, let’s check out the 2020 research analysis from the asset-management company Arabesque Partners. Want to know aht it found out? 80% of the reviewed studies showed that sustainability practices offer a positive impact on the investment performance. Still, wondering why socially responsible investing should be chosen? Various other studies have highlighted that SRI mutual funds can match conventional mutual funds in performance. Also, they can, at times, perform better.

Also, there is evidence that SRI funds might be less volatile as compared to conventional funds. Previously, there have been doubts regarding SRI and why socially responsible investing must be selected.

Opponents have argued that narrowing the investment options’ field leads to the narrowing of the investment returns too. Now, there is an increasing evidence pool which displays the opposite i.e., craze among people for socially responsible investing trends. SRI is not only good for the heart, but the portfolio as well. Moving your bucks into socially responsible investing trends is surely the win-win. It allows you to make the most of the bucks in 2 distinctive manners. These are, you can earn good returns, & promote those values which are significant to you.

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